Expert RA: IBA-Moscow gradually curtails its work in Russia

12:56 - 26.02.2019


February 26, Fineko/abc.az. Rating agency Expert RA has affirmed credit rating of IBA-Moscow Bank at the level of ruB+ with Stable outlook.

The Company reports that the Bank's rating is conditioned with high capital stock with low capacity for its generation, conservative estimates of market positions and corporate governance, acceptable asset quality, as well as an adequate liquid position.

"Weak assessment of market positions is linked with a limited range of operations carried out by the Bank in 2018 and significant reduction in assets (in 2018 gross assets decreased by 42%) in connection with the plans of the parent structure to close the business in the Russian Federation. As of 1 January the credit institution occupies the 194th place in the banking system of the Russian Federation, but the size of Bank's assets does not characterize its market position due to the fact that about 84% of its assets accounts for short-term interbank loans of the IBA. In this regard, the Bank is characterized by low diversification of business and operating income in the areas of activity," Expert RA informs.

Bank's capital adequacy is maintained at a very high level with keeping the essential size of the loss absorption buffer. The Bank is characterized by low profitability and extremely low net interest margin (0.6% in 2018). Also, during the last seven quarters, the Bank did not cover net interest and commission income expenses related to provision of activities that is negatively assessed by the Agency.

The weak performance of the Bank is due to low interest rates on short-term interbank loans placed in the parent bank.

"More than 80% of Bank's assets accounts for short-term interbank loans given to the parent bank, on which a 50% reserve is accrued. The successful completion of the voluntary restructuring of the parent bank's liabilities and the assignment of non-performing loans from its balance sheet allowed the IBA to improve its financial position. Nevertheless, the conservative reserve created by the Bank reflects the continuing increased credit risks of IBA, including those associated with the lack of an approved development strategy of the Bank and the banking group as a whole," Expert RA said.

The Agency also says that the basis of the Bank's funding is its own capital and funds raised from the parent bank. Market sources of liabilities for 2018 decreased much due to Bank's targeted policy aimed to reduce the cost of funding and the gradual curtailment of activity in the Russian Federation. Thus, population’s deposits, which at the end of 2017 accounted for more than half of Bank's liabilities, decreased by 98% in 2018. Bank’s liquidity norms with significant reserve exceed the minimum required by law; the ratio of highly liquid assets and raised funds is at the adequate level.

"The conservative assessment of the quality of corporate governance and strategic planning is conditioned by the lack of an approved strategy of development of both the IBA’s business in the Russian Federation and the general development of the banking group. At the same time, the Agency took into account the plans to change business model of IBA-Moscow LLC Bank to be implemented after approval of the new development strategy of the banking group in 2019, but at the moment this information has neutral impact on the final rating of the Bank. The current structure of operations of IBA-Moscow Bank testifies about essential impact of the parent bank on management decisions that leads to conservative assessment of this indicator," Expert RA says in a statement.

 

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